As we prepare for the 2023 tax season, taxpayers are always looking for ways to maximize their tax refunds by taking advantage of applicable deductions and credits. Parents will agree that children are their greatest joy. Of course, parenthood does come with many responsibilities such as providing shelter, food, and clothing for our little ones. Recognizing that all these expenses do add up, the government implemented a child tax credit to offset the costs.
The last few years have impacted millions of families financially and the economic state of affairs has put a strain on Americans. Families are still trying to recover from the devastating toll that the pandemic had on them. Taxpayers with children are facing financial challenges due to circumstances beyond their control and would appreciate any assistance to offset the high cost of living. However, the 2023 tax season is unfortunately not looking as optimistic as Americans would have hoped for, especially when many could have used a financial boost.
Tax Refunds May Be Less Than Last Year
With the uncertainty that taxpayers have faced during the last few years, don’t expect tax credits to remain the same. As you head into the 2023 tax season, prepare yourself with the possibility that your tax refunds may be less than the previous years. Unfortunately, all good things eventually come to an end. Two significant tax credits that families have come to depend on to reduce their income tax obligation each year are reverting back to their conservative level prior to the start of the pandemic. The child tax credit and the dependent care credit are both returning to their previous levels potentially impacting the tax refund amount this year. These two key tax credits can be disastrous to families that are already struggling, particularly when these credits have helped them stay afloat in hard economic times.
Understanding the Child Tax Credit
Typical taxpayers with children have come to know the child tax credit as a deduction they are entitled to every year. While their belief is valid, the true intent of the child tax credit was to provide financial support to families with children. Recognizing that costs relating to raising children can be expensive, the federal government provides taxpayers an additional benefit to compensate them; therefore relieving some of the burdens financially.
Congress Passed the American Rescue Plan
During the last few years, taxpayers with children noticed that the child tax credit increased, providing them with some additional financial assistance and relief. In 2021, Congress passed the American Rescue Plan to help stimulate the declining economy and provide financial assistance to struggling families with children. The American Rescue Plan increased the child tax credit benefit for families with children who were experiencing financial hardship. Families were given a credit of $3,600 for children aged 5 and under. Parents of children ages 6-17 were given a credit of $3,000. In an effort to aid American families, the IRS sent qualifying families half of their 2021 child tax credit in monthly advance payments.
Child Tax Credit Amount Decreased
For the 2023 tax season, Congress has decided not to extend the increased child tax credit. As a result, the child tax credit has dropped back to $2,000 per qualifying child for the 2022 tax year. While families have the option to claim the full child tax credit amount, they will not see that in the form of a tax refund. Rather, the child tax credit amount can offset a taxpayer’s tax liability and reduce it to a zero balance. You may be wondering how you can optimize your 2023 income tax returns. In the event that your child’s tax credit is greater than your tax debt, you can still legally bank some of that money. In fact, you may have the ability to claim up to $1,400 of the remaining child tax credit per child. This strategy is known as the Additional Child Tax Credit.
Eligibility Requirements for the Child Tax Credit
Taxpayers with children can claim the child tax credit for the 2022 tax year when they file their income tax returns this 2023 tax season. Your child or dependent qualifies for the child tax credit if they are under the age of 17 at the end of 2022. He or she must also have a valid Social Security number. Another important qualifying factor is that your child must have physically resided in your residence for greater than half of the year. Furthermore, your child must be properly claimed as your dependent on your income tax returns. Lastly, taxpayers must meet all eligibility requirements including annual income. It should not exceed more than $200,000 dollars for a single parent and $400,000 for a joint return.
Seek Help If You Have Questions
To eliminate any doubt and questions regarding qualifying for the 2023 child tax credit, you should seek assistance from an experienced tax professional to help you with filing your 2023 income tax returns. Start Fresh Tax Relief’s goals are to save you time and money, avoid costly errors and maximize your tax returns.